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Stamp duty changes boost housing market and push up prices

12-07-2014

Buyers spend their savings making higher offers while estate agents see sales rise the morning after autumn statement

Man walking past an estate agent's window

Estate agents report renewed interest from buyers and predict that increased demand will lead to higher prices in the months ahead. Photograph: Christopher Thomond for The Guardian./Christopher Thomond

Hilary Osborne

The traditional pre-Christmas lull in the housing market came to an abrupt end last week when the chancellor slashed stamp duty for all properties costing up to £937,000.

Estate agents reported renewed interest from buyers, with some putting their savings in to higher offers for homes. They predicted that the increased demand, together with a cash injection into the market, would lead to higher prices in the months ahead.

The chancellor’s announcement that the “slab structure” on the homebuyer’s tax would be scrapped and replaced with a progressive system had an immediate impact on the market, agents said, as would-be buyers realised they could increase their budgets.

The UK’s largest independent agency, Haart, said it had seen a 15% increase in inquiries on Thursday morning and a flurry of offers by clients who found they had more money to spend.

Russell Jervis, Haart’s managing director, said: “The change has generated new sales – there were people who suddenly could increase their offer and several new sales were agreed straight away.”

In north London Charlie Perdios, managing director of Anthony Pepe, an estate agency, said he had also been contacted by buyers who were willing to pay more. “There were a few deals where the buyers and sellers were about £5,000 to £10,000 apart; now the buyers are maybe saving £5,000, those deals can be resurrected.”

He added: “If people feel that they’ve got a few more thousand to spend, that will filter through to house prices.” Haart had been predicting a lull in activity in the runup to the general election but Jervis said branches are “optimistic about the start of 2015. I think we will continue to see growth in house prices.”

Under the old system, which netted the Treasury £6.45bn last year, the entire cost of a property was taxed according to the highest band it fell into, so there were sharp increases at each threshold. The “cliff edge” was particularly unpopular at the level of £250,000, where the rate changed from 1% to 3%, meaning that while a home costing £249,000 attracted duty of just £2,490, anyone spending £251,000 faced a tax bill of £7,530. Under the new system the stamp duty on a £275,000 house will be £4,500 lower.

Jervis said that estate agents thought about thresholds as they valued homes. “Anywhere between £250,000 and £265,000 was seen as a bit of a dead zone – you wouldn’t ask for that price as you knew people were not going to pay over £250,000,” he said. “I think you will now find properties priced at £255,000 where previously they would have been £249,995.”

Data for sales registered with the Land Registry in the first 10 months of the year show how prices clustered under the thresholds. 37,014 homes changed hands for between £240,000 and £250,000 between January and the end of October, but there were only 4,533 sales between £250,000 and £260,000.

In the £490,000-£500,000 bracket there were 6,065 sales. But there were only 508 house sales of between £500,000 – where the old stamp duty hit 4% – and £510,000. The pattern was repeated at the £1m and £2m thresholds.

Neal Hudson, a property analyst at Savills, said the tax change was likely to push prices higher: “We will see the benefits shared by buyer and seller and so there will be some price growth. In the past we have seen a wide range of stock, of varying quality, bunched up at £250k. Some will remain there while other better properties will move into the previous pricing gap.”

Although 98% of homebuyers will pay less tax as a result of the reforms, Alex Hilton of the campaigning group Generation Rent said the changes would not make it easier for those who were struggling to afford to buy a home.

“The chancellor has spun this as a benefit to buyers but that’s not how markets work,” he said. “The market price is the price the market will bear, and if you reduce the tax, the market will bear a slightly higher price so the seller benefits, not the buyer.”